The Importance of Accounts Payable Process
The importance of the accounts payable procedure or function should not be underestimated because it includes almost everything about an organisation’s settlements other than payroll. An entrepreneur or maybe a bookkeeper in a small company, an ordinary employee in an average-sized firm, or accounts payable unit in a big company can execute this process.
Despite the size of the firm, the goal of accounts payable, as one of the element of working capital (Also see How to Increase Working Capital), is to pay only for accurate and legit invoices as well as the organisation’s bills. The invoice must show the goods or services the firm has ordered or collected, as well as the suitable total amounts, calculations, unit costs, conditions, and so on before a supplier’s invoice is keyed into the accounting records and arranged to be paid.
The accounts payable procedure needs to possess internal controls to keep the firm’s cash as well as other assets safe. Some reasons of having internal controls include avoiding paying for invoices which are not accurate or claimed illegally, to prevent the firm from paying twice to the same supplier invoice, and to ensure that the organisation has taken all supplier invoices into account.
For an organisation to boost its internal controls, it should seek help from the professionals regularly. Organisations can choose to obtain an accounting service in Singapore if they need any assistance.
Apart from that, the efficiency and accuracy of the accounts payable process can ensure the firm’s financial statements to be complete and precise (Also see Four Different Services Provided by Accounting Firms). As double-entry accounting method is used, cancellation of a supplier invoice may cause an inaccurate amount to be reported by two accounts. For instance, if one did not record a repair expense punctually, the omission of the repair expense from the income statement and the omission of liability from the balance sheet will occur. Another example is that if the supplier invoice for a repair is recorded twice, overstatement of both the repair expense and the liabilities may happen.
These examples show clearly that, without an updated and well-run accounts payable process, the firm’s executives, as well as other users of the financial statements, will be getting an inexact estimation on the financial condition and performance of the organisation (Also see 4 Warning Signs to on Your Financial Statements).
Besides, a badly managed accounts payable procedure may cause you to lose some chances of getting a discount for settling some bills quickly. There may be some times when the due date of the supplier invoices has come, but the invoices are still unpaid (Also see Is Opening a Business Bank Account Necessary?). This may harm the relationship between the firm and its supplier. As a result, some suppliers will ask for cash when they deliver their goods to the firms. This has intense effects for a cash-strapped firm.
Some people may think that no problems will arise from paying bills quickly and only delaying the bills will cause troubles. However, this is not true. If a firm pays the supplier invoices earlier than it should, it may not have the ability to settle other bills by their deadlines as they are lack of cash (Also see Reasons to Outsource Your Payroll).